Profiteering hampers U.S. grid expansion
spectrum.ieee.org
spectrum.ieee.org
Subtitle “Earns 200k per month feeding back into the grid.”
F it might as well write it at this point.
In a small suburban neighborhood where the grass was always greener on the other side, one resident took "keeping up with the Joneses" to a whole new level. Meet Harold Grimsby, a man with a vision—or rather, a nuclear one. Tired of paying exorbitant electricity bills and wanting to make a statement, Harold decided to power his entire home with a mini nuclear reactor.
Neighbors initially scoffed at Harold's eccentricity, but their laughter turned to envy when they learned of his genius plan. With the surplus energy produced by his reactor, Harold began feeding back into the grid, raking in a whopping $200k per month. Suddenly, the once ridiculed Harold became the neighborhood's golden boy, the envy of all who dared to glance at their sky-high utility bills.
As Harold basked in his newfound glory, the rest of the neighborhood scrambled to keep up. Some attempted to harness wind power with comically oversized turbines, while others invested in solar panels that cluttered their roofs like patchwork quilts. But none could quite match Harold's ingenuity—or his bank account.
With every flick of a switch, Harold chuckled to himself, knowing that not only was he lighting up his home, but he was also powering his neighbors' envy. And as the sun set on the suburban landscape, Harold Grimsby, the neighborhood's nuclear pioneer, remained the undisputed king of watts and volts.
With those details, your story becomes much more realistic, especially for those in here for the $.
The illusion of profitable nuclear power is harmful for the debate. Thankfully you introduced it as fiction.
Neighbor's backyard.
> where does he get the fuel and for how long?
From the Libyans, until they find him.
What makes this utter fiction, would be getting approval from the various government agencies to transport the reactor to his home. Also getting a rail spur into his back yard. Then getting approval to turn it on.
In addition, it would be the equivalent of transporting a fully fueled Falcon 9 to your house... Small is relative! Then the transport out would be even worse because nuclear waste is even more regulated.
Utility monopolies are both vertically integrated, and horizontally integrated over a geographic region. Although this made sense in the 1920s, when this system was devised, it’s causing perverse incentives today. A healthy energy system may still include utilities, but in the 21st century they will not be able to be completely vertically integrated. We are going to need to see them give up generation and cede that to markets.
I think the only solution is when customer can buy from multiple generators and brokers
Lots of countries have nationalised the transmission network (while leaving the fully or partially privately run), which seems to work reasonably well.
To your point, I don't think making physical electrical conductors communal property would be anything less than a disaster. That conductors are most valuable when you have a grid makes the monopoly problem structural in my opinion.
I suspect from the indifference to the details and heavy-handed tone of the article that there is some particular agenda. Saying utilities are just greedy is not very compelling when the legal conditions on their operations are much more complex than most compabies to say the least.
There's a few options for natural monopolies. Regulated standards and practices, and tarrifs can be effective. Public ownership can be effective. Mandating divestiture can be effective.
A market works pretty ok for generation. Although, a system operator that coordinates to provide stability seems like a requirement.
I think there's potential for a market approach in long distance transmission; the operator could identify unmet transmission needs (sector A often has excess/curtailed generation, sector B often has excess/curtailed loads; maybe we should increase transmission capacity through those links), and run a bid process to solve those needs. I think the high price to build long distance transmission means you do want to have coordinated planning though: you don't want to massively overbuild transmission capacity on one path.
I’d take the Texas electrical prices and the single large black out over what we have from PGE
Not all of California is on PG&E, however; Sacramento (where I grew up) has SMUD, and while it ain't perfect, either, it's leaps and bounds better than PG&E - almost as if being community-owned means there's a stronger incentive to actually meet the needs of said community.
(1) In standard economics the way to exploit a monopoly is by supplying less to customers than what a competitive market would provide. That enables you to charge more.
There are at least two ways to get around that: you can try extensive regulation, or you can auction off the right to run the 'natural monopoly'. A competitive auction open to all comers will naturally capture whatever extra revenue exploitation of the monopoly could bring. (You can also mix and match.)
(2) The second concern is about who should own the entity that provides the service in question. You claim that it should not be the private sector, but don't bring any arguments for it. (The arguments you do bring are applicable to the first concern.)
It works with land, where if one person owns a plot of land, another person can't own it, which is why a land value tax is so efficient.
With utilities, you could only charge for the right to run the monopoly if the government artificially prevents market entry, which is a bad idea IMHO, for all sorts of reasons. Better to have a public option, and a right by anyone to provide their own private option.
You can have that right, and still auction off the right / obligation to run the public option.
If there's no public option already existing, I wouldn't give any subsidies etc.
A particularly fruitful way to get more competition is to invite established foreign companies to set up shop locally.
I don't understand why you would want to pick a winner, the 'public option' and subsidize it?
We don't even know for sure whether the industry we are looking at is actually a 'natural monopoly' until such a monopoly develops.
So I would leave them alone. However, when such a monopoly develops, then you _might_ (might!) want to break out regulations. (Basically whatever makes your 'public option' the 'public' option are the kinds of regulations you just might want to break out.)
The biggest useful 'regulation' I can think of is one we already mentioned: auction off the natural monopoly.
And by picking the winner via subsidies, you can achieve this publicly aligned winner without regulatory restrictions on competition. Any regulatory restriction on private parties violates basic liberties and thus is not justifiable IMHO. It also is a slippery slope to very destructive regulatory barriers to entry instated at the behest of incumbents.
An attempt to pick the winner via subsidies also might not succeed, because even with subsidies, the public option may fail to gain significant market share. And in that case, it's fortunate that the winner wasn't subject to regulatory restrictions regimenting its behavior, as a government that is too incompetent to create a market winner via subsidies is also likely to be too incompetent to do an effective job at designing the regulatory restrictions imposed on the market leader.
In short, with subsidies, all that you are risking is the subsidies themselves, in the event that they're allocated to an incompetent organization. You're not risking undermining the entire industry with dysfunctional regulatory regimentation.
That's why you tax away the economic rent. Eg via the auction we discussed before.
The rest of your comment already argues that the scenario in your first paragraph won't work?
You'd want to allowed negative bids (ie you get paid to run the thing to cover losses), and the bid closest to positive infinity wins.
A majority of Mainers opposed the transmission corridor for a variety of reasons(1) for years until they finally lost to the business interest, who in this case were the ones “profiteering,” not the ones fighting it.
(1)
A)Won’t reduce climate-changing pollution, and may actually increase it.
B) Cuts 53 miles of new transmission lines through undeveloped forests in Maine’s North Woods, harming brook trout, deer, other wildlife, and the tourism economy.
C) Jeopardizes the construction of new in-state renewable energy projects and creation of clean energy jobs.
D) Generates billions of dollars of profit for CMP and Hydro-Quebec while offering very little to Maine people and businesses.
The line is estimated to bring a reduction of about 3 million tons of carbon a year. So yes, cutting down some trees for 50 miles is a fair tradeoff to decades of pollution reduction.
> offering very little to Maine people and businesses
Reducing oil/coal pollution in the region is a pretty big benefit.
Slowing global warming is a pretty big benefit.
Everyone (claims) to be for doing something about global warming until it means something happening near them.
The same BS is happening with the Cape Cod wind farms. The locals are screaming about how the power being generated is going to be "sold" to Connecticut and trotting out unfounded claims about environmental and species impact.
Something happening near you isn't any indication of its benefit to the environment. The commenter seems to be more concerned that it might not be beneficial.
[0] Hydropower, solar power, and building housing for instance.
Cigarettes used to be good for you. The marketing arms of large corporations funded much research that supported that claim.
What warrants delay is situationally dependent. We shouldn't make blanket statements about delays. Especially as pertains to policy.
I doing know the details, but this style of thinking is usually wrong.
Power is a network.
Only if there is unused hydroelectric generation is the power green.
Otherwise you are just shifting power and tagging it "green", but not making any actual difference.
Marginal changes cause marginal increases.
It is unintuitive and requires thinking about power in the right way.
This should not be difficult for a regional newspaper to figure out.
but otherwise, yeah, of course these companies are going to do anything to maximize profits. also shocking, water is wet
Reconductoring.
https://news.ycombinator.com/item?id=39485940
https://heatmap.news/climate/clean-energy-grid-reconductorin... | https://archive.today/q4wWp
https://www.energy.gov/lpo/articles/pge-reconductoring-proje... ("Revised Biological Assessment for the Carrizo-Midway 230kV Reconductoring Project") (Start at Page 41)
1) The competitors who would profit from the interconnects don't think they are profitable to build.
2) The money is better spent building more power plants.
3) Smaller interconnects are less risky.
And the plan to combat this in "Help on the Hill" is to try and force companies to do things that they don't want to do. It'd be much more sensible to deregulate and let the people who profit build the interconnects.
I note that the people sponsoring the bills are US democrats. Is this a red-state blue-state thing where the blue states have a power problem? I've heard Texas has cheap energy and an independent grid. Or is it just general policy manoeuvring?
Easy without regulation.
It seemed great at first because the prices were really cheap, but the lack of good oversight meant the winterization didn't cover the 20 year horizon let alone a 50 or 100 year one. Temps got unusually cold in 2021 which led to huge power outages, deaths and incredible price problems, up to 180x[0].
The consumer's total costs over the course of a year are lower in Texas than a California, by a large magnitude.
I realize some people just had a perfect storm of a large monthly bill, but seems like that could be solved by more regulation on the pricing cap side while still leaving the production to be a more open system. I believe Texas has already moved in that direction.
Adding price cap regulation will necessarily raise the average prices to pay for the occasions that the price goes 180x, or even 30x. There's no free lunch.
Another point is that in the industry, most prefer to use "restructuring" instead of "deregulation" as power is just as regulated as ever, just in a different manner. The wholesale electricity markets are a bit more transparent, but are under tons of regulations still.
The electricity rates they charge are determined by government-appointed commissioners, and the basis of that calculation has historically been a fixed rate of return on capital.
So for a utility the normal rules of business don’t apply - the more you can increase your costs, the more money you make!
Wikipedia has a reasonable introduction to this here: https://en.wikipedia.org/wiki/Rate-of-return_regulation
If you don't like how Texas or California does things there's still plenty of options to choose from.
But yeah, California has problems because it's regulators get stingy. If you control how much maintenance a company can do and cut back how much it should do then don't be surprised when things are poorly maintained.
> When PG&E suggested inspecting 300,000 poles a year to ensure safety in 2012, CPUC cut the total to 235,000.¹¹ In 2011 and 2012, when PG&E spent almost $100 million more on replacing poles than allowed by CPUC, the regulator took that as a reason to deny future claims for pole replacement spending. It said “PG&E demonstrated the capacity and willingness to spend more than previously authorized…to meet service obligations,” thus they would not include extra required pole replacements in the “rate base.” These sorts of decisions created exactly the wrong incentives, penalizing PG&E for doing more than was required.¹²
The '90s deregulation directly led to an 800% increase in wholesale electricity prices in 2000, and rolling blackouts for customers of investor owned utilities like SDGE (San Diego) and PGE (Central/Northern California). The government owned utilities, like LADWP (serving the Los Angeles area) did not need to resort to rolling blackouts (zero blackouts), and currently have much lower rates* while being fully sustained by the rate payers (not having the parasitic "investors" demanding greater profits allows for proper long-term planning and significantly lower prices for the rate payers).
* Average $0.26/kWh LADWP. Average $0.45/kWh PGE
As a consumer, you might buy retail electrical energy, transmission and distribution from an investor owned utility like PG&E, which is regulated by the California Public Utilities Commission.
- Price stability itself has a value for electricity consumers. Insulating consumers from the price variations that come from the inherent variability in supply and demand is a major "feature" of retail electric service. While one could provide their own stability with enough personal batteries and generators, practically that's only really possible for the wealthy.
- Lack of regulation around planning, upkeep, maintenance, and backup planning results in short-term profit maximization among generators (and cost minimization among consumers who enjoy very low electric rates in the short term) leads to situations like the catastrophic Texas outages of 2021. Now that Texas has legislated price-caps (which is direct economic regulation) [1], typical rates will rise.
1. https://www.texastribune.org/2023/05/22/texas-electricity-po...
I've been living in Texas since 2022 and the grid has anecdotally been just as reliable as anywhere else I've lived. Unusually crazy winter weather knocks out grids all over - back in '98 the ice storm in the Northeast US & Canada knocked out power for millions of people for up to 2 weeks in some cases.
They have various conservation strategies to manage peak demand if it exceeds capacity, like asking for voluntary conservation and/or rolling blackouts in extreme cases, but every grid operator does contingency planning like this. The Texas grid handled historic demand levels over the summer just fine.
That week or two of failures, even if it was the only one ever, is enough to prove the claim.
No, it's correct. It just lead to a LOT of problems[0].
To me something that is needed by everyone really should be fully regulated.
People say that, then when you look at migrants they tend to move to places where things are cheaper.
It is hard to make a convincing argument for cheap power because the benefits are so diffuse, but when people are making choices for where to live [0] vs power prices [1], there is a real bias towards places with cheaper energy, and away from places with expensive energy. That is a clue about what matters in practice.
So we're in this world where people do love to whinge about the Texas grid - and the reason they know about that grid is because Texas is really successful. In part (in large part) because of their energy policies and general attitude towards liberty.
[0] https://en.wikipedia.org/wiki/List_of_U.S._states_and_territ...
[1] https://www.eia.gov/electricity/monthly/epm_table_grapher.ph...
External factors can mess with the equilibrium, think winter storm or unexpected pregnancy, but those aren't important to us, so we happily ignore that for now. Focus on the immediate up-side, and just ignore the possible (but unlikely) downside.
Don't get me wrong, we kinda have to live like this, or we end up as preppers. We kinda have to ignore things like possible earthquakes on the West Coast or we'd be permanently terrified.
On the other hand we care enough to cater to some level of earthquakes in building codes. But no building code will guard against Cascadia.
So sure, lots of people move to Texas because of the weather, or cheaper housing, or cheap energy, or whatever. But as a general rule they're likely to be less resilient to unlikely events.
1) Incumbents don't want to compete with other profit seeking companies.
2) Incumbents make more money generating and delivering power, than buying and delivering power.
3) Margin is low on large transmission infrastructure projects.
Overall, I agree with your point though. It is better to remove the veto power of incumbents than try to force them to do what you want.
However, the fundamental problem isnt about interconnects, it is about captured markets. If you allow interconnects to be built, you still have to force power companies to buy the power. Customers cant pick power companies, and companies would rather generate their own power for 2X than buy it for 1X because they are usually regulated with a cost plus profit margin.
The higher their costs, the higher the profit. In fact, the ONLY way to increase profits is to drive up costs.
0: https://www.cbsnews.com/news/ercot-prices-texas-heat-wave-el...
Firstly, it's worth saying that in markets with high barrier-to-entry costs, it's not easy for the "market" to protect against profiteering.
Or put another way, if the local utility decides to charge more, its not like you can just build a power station, and connect to the grid, to undercut and take a profit.
Equally, given the cost of starting up, concessions are made to protect monopolies (or semi monopolies) to avoid unnecessary duplication of infrastructure.
Regulations though can be good, or bad, depending on your point of view. They either work for the business (keeping out competition) or for the consumer (preventing price gouging.)
And it's not just today's profits that matter but tomorrow's as well. If I'm allowed to charge more during periods of high demand, that encourages me to increase scarcity. I'm incentived to provide less power, and get more profit.
So deregulation likely ends badly for the consumer. It likely leads to scarcity since that improves profits. On the other hand deregulation has allowed me to have residential solar, dropping my energy bill by 80%. And high prices make that financially attractive. So some deregulation good?
My point is that the balance between regulator, provider and consumer is a very fine one, and messing with that balance can have consequences.
Technically it is pretty easy. Buy some solar panels or a diesel generator. Grid access is a harder but as far as I've seen the limiting factor is going to be government policy. You won't be cost competitive with state of the art .... but that implies that the grid prices are fair so you won't be able to drive prices down with any amount of capital.
People don't build new plants often, but that is because high prices are going to be caused by (1) that is the best anyone can do or (2) the government is enforcing regulation that makes competition impossible and in rare cases (3) someone else is already building new power plants faster and better than they can, so it is a waste of effort.
If none of those 3 conditions are present, things happen at the speed of capitalism (ie, faster than people think).
> If I'm allowed to charge more during periods of high demand, that encourages me to increase scarcity. I'm incentived to provide less power, and get more profit.
This logic is just not describing what happens in practice. If the government is giving someone monopoly power then yes, but under normal conditions someone trying to execute this strategy just goes bankrupt because competitors will undercut them in high demand periods and supply power in normal periods.
That doesn't track with my experience (Northeastern US).
While I can choose from multiple companies to provide me with electricity (using the extant infrastructure as mandated by the public utilities regulator), the owner of that infrastructure (in my case Consolidated Edison) charges more for delivering that electricity than the cost of the electricity itself.
As such, it doesn't really matter who is providing my electricity -- I end up paying more for the "delivery infrastructure" regardless of my $/kwh costs.
It is though just not in a way that's obvious. It's not free reign capitalism, there's government oversight to prevent the obvious price gouging. The issue is when that 20 year mark hits and no one was ready but the automated systems were allowed to charge uncapped, 180x normal rate[0].
The power company cut corners where it could, on winterization because "what are the chances of that happening"? Were low, but not zero. They had happened before in Texas's history but they just chose not to because it's relatively expensive to protect against 50 yr time horizons.
That is actually relatively normal behaviour for an electricity market. In my area the price usually jumps 2 orders of magnitude at the height of summer. It isn't a concern (the grid is cooked, but not because of peak prices). The market is signalling that it is worth having capacity available just for the peak - the cost of that type of redundancy is high, so the prices need to be high to make it happen.
Also, if the price is capped then the grid blacks out at that point. Uncapped is the way to go.
Because eventually someone realizes profit can be maximized by (minimizing investment) + (maximizing risk) + (increasing prices) + (appealing for government bailouts whenever catastrophe strikes).
A utility commission that looks skeptically at rate increases, but in return provides a more stable rate that industry can use to plan long-term expansions against, works better.
Yes, you have to deal with regulatory capture and ambivalence towards increasing efficiency and modernizing business -- but those are still solvable problems in a regulated environment.
For a good example, watch the documentary:
Enron: The Smartest Guys in the Room
Wyoming wind offers a solution to California’s strained energy system and a path forward for a reliable renewable energy grid because Wyoming wind is at its highest intensity when California demand is highest [2]. But you need to transmit that energy across four states to get it from where it’s produced, to where it’s needed.
[1] https://www.ncsl.org/energy/state-renewable-portfolio-standa...
[2] https://www.technologyreview.com/2017/12/28/146566/how-to-ge...